Cliff Asness: enterprise value tax is "pernicious" and "economically destructive"
By Lawrence Delevingne
Wed Mar 13, 2013
The AQR founder slams the potential for carried interest-related tax changes in a WSJ op-ed.
Never shy to
voice his discontent with Washington--and Democrats in
particular--Cliff Asness is getting ahead of another political
The libertarian-leaning AQR Capital Management founder and his
chief risk officer, Aaron Brown, argued in a
Wall Street Journal op-ed on Monday that attaching the
so-called enterprise value tax to a change in carried interest
treatment would be "pernicious and economically destructive."
It's not the first time he's raised the issue, having
discussed it at the 2011 Delivering Alpha conference.
The profits from the sale of a business are taxed at a lower
capital gains rate, which recognizes the gains in the value of
the enterprise. But proposals from the White House and
Congressional Democrats in recent years have called for the
enterprise value of certain investment services
businesses--including hedge, private equity and venture capital
funds--to be taxed at higher ordinary income rates.
"The Enterprise Value Tax is a step toward selective punitive
wealth taxes. Under the false cover of 'fixing' the treatment
of carried interest, it would tax the life's work of one group
of entrepreneurs while ignoring all the rest," Asness and Brown
wrote. "It would open the door to other targeted wealth taxes,
a dangerous and addictive drug. If Republicans regained power,
would they pursue taxes only on left-leaning filmmakers? The
EVT should be stopped before it starts."
Asness is apparently trying to get ahead of the debate. The
enterprise value tax was a hot topic in
2011 when it was included in draft legislation that never
made it through Congress, but it has not been a focus of the
hedge fund industry for more than a year. Still, as Washington
renews the debate about how to cut the deficit, carried
interest and enterprise value could easily be included in
proposals to raise revenue.
Asness argues that most hedge funds don't benefit from carried
interest treatment because their trading is relatively short
term, as it is at quantitatively-focused AQR. Instead, the
motive is raise government revenue from an easy-to-target
"Also driving the EVT push is the fact that investment
managers--hedge-fund managers in particular--are unpopular,"
the op-ed said. "Yet the tax would apply not just to hedge
funds but to a much broader class of investment partnerships
across industries from real estate to manufacturing. Many of
these (like hedge funds) never much benefited from the
treatment of carried interest. And what should popularity have
to do with tax rates anyway?"
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